S&P 500 notches biggest rally since November 2022 on heels of labor report

Stocks staged a solid rebound and bonds retreated after the latest U.S. labor-market reading helped ease concern about a more pronounced slowdown in the world’s largest economy.

All major groups in the S&P 500 advanced, with the gauge notching its biggest rally since November 2022 as data showed US initial jobless claims tumbled the most in nearly a year. As economic angst subsided, Treasuries dropped across the curve — with the selloff led by shorter maturities. Bonds held their losses after a weak $25 billion sale of 30-year government debt.

Markets have been in a tailspin since last week’s economic data spurred concerns the Fed is waiting too long to cut rates, jeopardizing prospects for a “soft landing.” Those jitters combined with stretched positioning, underwhelming technology earnings and poor seasonal trends were among the factors triggering volatility.

“Some good news with jobless claims,” said Chris Zaccarelli at Independent Adviser Alliance. “We are exercising caution, but think that the panic that started earlier in the month was overblown.”

At Interactive Brokers, Steve Sosnick says he has an important question for the buyers: “Are you the same people who were clamoring for an emergency 50 basis-point rate cut on Monday?”

“Can we say that today’s number has quelled the looming recession fears? Absolutely not,” he added. “Can we say that stock traders remain fixated on buying dips and chasing rallies? Absolutely yes. Does the latter indicate that we desperately need rate cuts to keep markets afloat? C’mon, quit your whining.”

The S&P 500 rose 2.3%. The Nasdaq 100 climbed 3.1%. The Russell 2000 of smaller firms added 2.4%. Nvidia Corp. led gains in megacaps. Eli Lilly &Co. soared on a bullish outlook driven by sales of its weight-loss drugs.

Treasury 10-year yields rose four basis points to 3.99%. Swap traders further trimmed bets on aggressive Federal Reserve easing in 2024. Cryptocurrencies surged, with investors returning to riskier assets across financial markets.

“It has been quite a week,” said Liz Young Thomas at SoFi. “Up, down, and all around. We learned how sensitive markets now are to cooler U.S. economic data, how broad reaching the impact of the yen carry trade can be, and how conditioned investors are to expect rate cuts as the salve for every scrape.”

That said, Thomas believes there is more volatility to come, and cooler economic and earnings data that will need to be digested for the remainder of the year.

“Volatility can be unsettling, but it can also be an opportunity to revisit your allocations and do a gut check on what level of risk you’re comfortable with, given the wide variety of possible outcomes,” she concluded.